The nonpartisan Tax Policy Center released a report yesterday that explains in detail the effect that a McCain presidency and an Obama presidency would have on the tax bill for American households. The data are stratified by income range and reflect a wide difference in stated policy between the two candidates.
In addition to making the 2001 and 2003 tax cuts permanent, McCain says he would double the exemption for dependents, lower the corporate tax rate, make expensing rules more generous for small businesses and lessen the bite of the estate tax and Alternative Minimum tax.
The net result: compared with their tax bill today, taxpayers on average would see their tax bill cut by nearly $1,200. That means their after-tax income would rise by 2%…
Obama’s plan would keep the 2001 and 2003 tax cuts in place for everyone except those making more than roughly $250,000, and he would increase the capital gains tax. Obama would also introduce new tax breaks for lower and middle-income groups…
The net result: compared with their tax bill today, taxpayers on average would see their tax bill cut by nearly $160 under Obama’s plan. That means their after-tax income would rise by 0.3%.
It’s also worth noting that McCain’s plan calls for the biggest percentage (that is, most meaningful) tax decrease for the highest earners while Obama’s allows the lowest income earners to receive the biggest break.
This table from the Tax Policy Center study illustrates how after-tax income will change in 2009 if either of the candidate’s tax policies are enacted. A lower after-tax income indicates higher effective tax rates due to a variety of proposed changes to the tax code.
A chart provided by CNN Money defines the income ranges more succinctly and provides hard numbers. I fall in the middle, and would hypothetically see a decrease in my tax bill amounting anywhere from about $1,000 to $2,600 depending on how much I earn and who ends up in office.
| MCCAIN | OBAMA | |
| Income | Avg. tax bill | Avg. tax bill |
| Over $2.9M | -$269,364 | +$701,885 |
| $603K and up | -$45,361 | +$115,974 |
| $227K-$603K | -$7,871 | +$12 |
| $161K-$227K | -$4,380 | -$2,789 |
| $112K-$161K | -$2,614 | -$2,204 |
| $66K-$112K | -$1,009 | -$1,290 |
| $38K-$66K | -$319 | -$1,042 |
| $19K-$38K | -$113 | -$892 |
| Under $19K | -$19 | -$567 |
This speculation is interesting but mostly academic. These figures are not absolutes for three reasons. First, we’re dealing with politicians, so their proposals might change as they hammer out details, talk to advisers, and determine what strategy will get them into office. Second, their opinions may change once the winning nominee is sworn in to office. Third, any policy changes have to find their way through Congress first, where compromises must be negotiated before anything gets done.
So take these predictions and studies with a grain of salt.
A Preliminary Analysis of the 2008 Presidential Candidates’ Tax Plans [pdf], Tax Policy Center, June 11, 2008.
What They’ll Do To Your Tax Bill, Jeanne Sahadi, CNN Money, June 11, 2008.
Published or updated June 12, 2008.
{ 17 comments… read them below or add one }
Averages are always the least informative pieces of information when we’re looking at income, because the few people making the most will always skew everything their way.
Christina: True, that’s why the CNN Money table is more useful. It limits income by range. The middle tiers are more useful than the outlying tiers for the reason you mention. The individual earning $60 million a year will skew the “over $2.9 million” tier. These are the limitations of popular statistics, though a median in conjunction with a mean can be helpful.
I love tax cuts as much as the next guy, but I wanna see someone campaigning on cutting spending. As long as they keep spending our money like drunken sailors, tax cuts are only a short term solution.
This is great, just goes to show who the Republicans really support… the rich. And as for the rich helping the economy by creating new jobs, I don’t buy it. When given the chance, the general trend for them is to cut jobs and increase their own salaries. Our tax system is not fair because the more money you have, the more loopholes you have to not pay tax. I’m guilty as an upper middle class person; I use them too, but it would be right to get rid of some of them to benefit the poorer ones. And people in the middle class and lower need exta money for basic living expenses, gas, college tuition, etc… I always say that a rich person making an extra $100,000 may buy a nice luxury item and pocket the rest while ten middle class people each with $10K extra will help the economy more by buying a variety of things. Also, if companies keep cutting jobs, who’s going to buy the stuff sold by the companies laying them off? They shrink their own markets.
First, in the spirit of full disclosure, though if you visit my blog you will see – I am an avid supporter of Senator Obama.
Given that, although I can appreciate the concern about our run away government spending, I think as personal financial experts always say – there is good debt and bad debt. The war in Iraq is an incredibly significant part of our govt budget – your personal opinion on the worthiness of the war will determine how you feel about that and I have no comment to add.
My real point is regarding the incredible need we have for rebuilding our infrastructure in America. We are riding on a network of highways and bridges built over 40-60 years ago in many cases. Our public education is suffering a great deal as well. Finally, in 2005 New Orleans and surrounding areas suffered a great deal and during the last week I believe a dam in the Midwest broke causing flooding. It appears our aging dams and systems in place are quickly crumbling each summer with new adverse weather events. Again – imagine the employment we could provide.
Reports yesterday indicate China has tripled their capacity to produce energy via wind I believe and that they anticipate being up to 20,000 megawatts by 2020. We could go a long way toward reducing the burden of the rising fuel costs if we shifted to a “home grown” resource.
So, while I would love to see lower taxes, I would prefer to see Americans EMPLOYED, which will increase tax revenue, to rebuild our infrastructure and pave the way for a new direction in a GREEN economy. We tried the trickle down economy in the 80s, the 90s were the age of the entrepreneurs, maybe we could close out this decade with a trickle up approach – starting with well paid jobs for American workers in our quest for a green economy and improving the infrastructure, and reinvestment in public education.
This really is an interesting discussion related to the tax system in regards to what is supposedly fair. However, what I think people are missing about attacking the so called “rich” is that the same rich people who get the biggest benefit pay the highest majority of taxes. See simplified table below for an analysis of taxes (based on the current marginal tax rates in the U.S.) where the top two earning groups pay 80.58% of the taxes and earn 75% of the income while the people in the bottom two groups pay just over 1% of the taxes and earn 4% of the income (this becomes more skewed when you look at the actual data with top tax payers paying a very high percentage of the total taxes). So what is really fair? and Any change in tax rates is going to impact the top tax payers more because they pay a larger percentage of the taxes. Just some food for thought.
Income Current Tax Rate Current Taxes % Total Taxes
$8,025.0 10% $802.50 0.15%
$32,550.0 15% $5,685.00 1.07%
$78,850.0 25% $25,397.50 4.77%
$164,550.0 28% $71,471.50 13.43%
$357,700.0 33% $189,512.50 35.61%
$500,000.0 35% $239,317.50 44.97%
Total $532,186.50 100.00%
OK I am a bit confused because this shows Obama’s plan more favorably???
http://blog.washingtonpost.com/the-trail/2008/06/12/mccains_tax_plan_aids_wealthy.html
Depends on your point of view. Both articles are based on the same data and reach the same conclusions.
Yes but Thor,
Those poorer people pay less tax percentage wise, but look at how few dollars they make and have to live off of. Those at the higher end of the scale have benefited more from the infrastructure provided by our government so they should be happy to pay out more in return. Also, those at the higher end of the scale may have worked hard to get what they have, but so have many people at the middle and bottom end of the scale. Warren Buffett and Bill Gates have even publicly stated that they don’t pay enough tax. A person making $600K per year will not suffer with $70K extra in taxes as much as thirty-five people making $20K would benefit from paying $2,000 less in taxes. Those tax amount changes would balance each other out. And why should capital gains be taxed less than income? Poorer people can’t afford to invest in stocks in order to get taxed at the lower rate whereas wealthier people do this all the time. This is unjust.
I think the ultimate solution is a flat tax at let’s say 20%, but one with a huge standard deduction, like $25,000 and few deductions except for things like education and medical expenses. Our country is an expensive war and we need infrastructure development and perhaps government programs to fund alternative energy technologies. Since the rich are most able to help, shouldn’t they bear more of the burden? And in the end, everyone wins because fewer people struggle, more are able to feed themselves, own homes, buy things, and support business with commerce. I would theorize that crime goes down too when the lower income brackets can afford to live better too.
UH2L
Couple of points.
1. Non-partisan does not equal unbiased or objective. If just mean that they aren’t as a group affiliated with a political party.
2. We would all be better served if “think tanks” or “policy centers” were identified as “liberal” or “conservative” or some other term to identify their philosophical point of view or values. They all have them and it affects what they view as “good” and “bad” and how they weigh the merits of proposals.
3. To evaluate any proposal on whether it benefits you personally doesn’t reflect good public policy, especially so when it relates to how it affects you TODAY as opposed to tomorrow and beyond.
4. There is no end to proposals that won’t tax you or me but just the man behind the tree.
5. I have seen the analyses that show how much of tax revenues are collected on a percentage basis from the top 1% and top 10% pay vs the bottom 50%. Without looking determine what you think would be “fair”, then look up the numbers and see if the numbers meet your pre-detemined sense of fairness.
6. If the top 5% pay 30 % of the taxes would that be enough? 50%? Would that be fair? Would that be the right public policy? If the current system met your pre-determined sense of fairness and you were surprised by the answer, would it change your mind about proposals to increase the percentage? If not, why not?
A question. Are these salary ranges for an individual or for a family?
So what are the tax effects of Bob Barr getting the presidency? ;)
In reply to Flexo, you seemed surprised that Obama’s plan is favorable to lower or middle class. I just found this website and am now reviewing the blog. If citizens would research and refuse stereotypes of Liberal and Conservatives of past have changed. With all the spending of this administration “conservative” no longer applies to their party. The president along with Republican Congress have piled up the hughest deficit of all time.
They consider themselves “compassionate Christians” but yet are stupified about helping fellow citizens in times of disaster and attend church less than Liberal friends. The Liberals in fact left their administration in the black and chose to help the citizens of their country with the money they did spend. They helped the U.S. economy and the ability to buy homes. We have owned a small business for 30 years and found we only got a small group policy thanks to Hillary Clinton’s health insurance proposals of the 90s that does not let small groups business of 2 or more use pre-existing illnesses against them. Thank you Democrats–that is money I can use elsewhere in our business in stead of paying horrendous health premiums.
Please review your stereotype of Democrat and Republicans. Do not be afraid to visit other nonpartisan websites or snopes.com and educate yourself. You may find your party is not what it seems. From Republican to now Democrat, that is what I found. No longer can I subscribe to the politics of the Republican party.
Lil123: I’m not sure where you got the impression that I was surprised Obama’s plan is more favorable to lower/middle income earners. Nor have any idea where in the few words I wrote above I stereotyped either Democrats or Republicans. I’m not sure what you mean by “my party.” I don’t have a party. Even when I invite friends over, I call it a “get-together.” Read Consumerism Commentary and educate yourself.
Just wondering what other people think about what should be considered the “middle class” income. I have read the tax plans for both McCain & Obama. Both talk about helping the middle class but neither one makes it clear just who the middle class is. All through Obama’s tax plan he talks about helping middle class and he refers to people making $250K or less per year. That gives me the impression that he considers that to be middle class but he doesn’t state if that amount is for a family or per person. If that’s the case, I guess I’m considered poor because I have never earned that amount in one year nor has my family of 4 reported that income in one year. Looking up middle class on a Federal site, it stated that middle class income in US was considered in the range of $40K to $65K per year per person or $59K to $85K per year based on an average family of 4 (2 adults, 2 children). But, in a recent bill from Congress addressing children’s health care, Congress wanted to allow Government insurance for all children from poor families and their impression of a poor family was a family of 4 making under $86K per year. The bill was vetoed by Bush because he thought $86K was too high and families making that amount per year could well afford to pay for their children’s health insurance. I would just like some feedback on other peoples opinion as to what they consider the “middle class” income should be for a family of 4 (2 adults, 2 children).Furthermore, check this clash videos I found yesterday about the US Presidential candidates have talked taxes. Well, it’s entitled Obama v. McCain on Taxes. Watch these statements – then vote in http://clashorama.com/index.php?id=194
First I’d like to state that I do not believe that the actual implemented policy of either candidate would be the one actually implemented. Besides the historical trend of candidates promising particular policies and pulling a 180, there is also the consideration that any economic policy would have to make it through congress first. Given the partisan nature of our two party system, the likelihood of any tax policy making it through without major concessions is all but non-existent.
However, using the figures as a base reference for the general trend either candidate would take, I must admit I prefer Obama’s policy to McCain. As has been stated, the upper class do pay the majority of our taxes. However, they are also earning the vast majority of money. 1% of our populace earns more than the other 99% combined. While in many cases I would consider this a reward for hard work and achievement, I cannot support the idea that a change from a take home of 1.49 million to 1.23 million is a major issue. While that is a large amount of money, when compared to the cost of living, it is non-existent. Whereas a change from $30,800 to $32,120 is a major change.
The other argument I have is based on an overall tax cut of a little over 2% on McCains plan, with only a 0.3% on Obamas. Either candidate is going to continue deficit spending, but the tax impact is minimized on Obamas side.
I am a stay at home mom. I have 4 children. My husband works at a factory and brings home $68,000 a year. We own our home and have two vehicles. We live comfortably. We have had to work hard for what we have. When we first got married we made about $30,000 a year. I think what people are missing is that the rich have to work hard for there money. Just because they have done well the government should not be able to decide how much they need to give to those with less. Those of us with less need to work harder and be more responsible with our money. There are already plenty of govt. agencies to help those who are struggling. Much of the problem in America is that the middle class wants to live like the rich. We spend, spend, spend and then say we can’t afford our bills.